Beltway Insiders Don't Mind Cutting Social Security Benefits For This Simple Reason

The establishment consensus on Social Security is accurately summarized by Martin Feldstein: "Preventing an explosion of the national debt requires slowing the growth of the benefits of middle-class retirees." But the truth is the opposite: the middle class and poor need more help than ever.

David Callahan has written at Demos' Policyshop blog that cutting Social Security is the wrong move in the deficit debate and argues the program is more important than ever now that over 4 million seniors are living in poverty. Duncan Black argues in USA Today that, "The majority of people nearing retirement will not have sufficient funds to retire with anything resembling economic security and comfort."

There has been a disturbing spike in poverty among the elderly, reports the Philadelphia Inquirer: "Poverty among the elderly is growing. And deep or extreme poverty — defined by the government as a single person earning $5,700 a year or less — has taken a jump that even experts find astonishing."

A report by the New America Foundation, co-written by Demos analyst Robert Hiltonsmith, finds that, "This consensus [that Social Security must be cut] is not only misconceived in its diagnosis but also mistaken in its prescriptions and potentially disastrous in its consequences. Retirement security is often thought of as three-legged 'stool' consisting of Social Security, employer retirement plans, and private savings. Social Security has been far more stable and successful than the other two legs of the stool."

The report argues for a new universal flat benefit called Social Security Part B that would supplement the current Social Security system to be paid from general federal revenues. The program would be a guaranteed minimum income for seniors. Social Security Part A would resemble the current system and pay out according to wages. This would replace the confusing mess of private funds and supplements that seniors rely on today.

Concerns about the inadequacy of Social Security are finally reaching the public discussion. Sen. Tom Harkin (D-Iowa) has introduced a bill that would use a new inflation measure to calculate Social Security benefits. The new measure (called the CPI-E) would more accurately take into account the fact that seniors spend more money on medical goods than younger Americans.

Sen. Sherrod Brown (D-Ohio) is joining Harkin’s fight to increase Social Security benefits, and he is joined by Sen. Bernie Sanders (I-Vermont), who is on the budget committee working to eliminate the sequestration.

Although the pushback against the Beltway pundits advocating for Social Security cuts is welcome, it may appear surprising that it took so long to mobilize politicians in support of such a popular program. The political explanation for the backwards debate about Social Security is simple: wealthy citizens have entirely divergent interests from those of the average citizen, and Congress is far more likely to listen to the former than the latter. Larry Bartels and Benjamin Page write in a 2013 paper on inequality and political preferences, "There was also a tendency for the wealthiest respondents to tilt even more than the less wealthy toward cutting back Social Security specifically." Even while the Washington establishment discuss cutting Social Security, 75% of Americans favor discussing an increase in benefits.

The explanation is simple: the wealthiest Americans don’t rely on Social Security (see chart).

“Income of the Population 55 or Older, 2010” Table 10.5

As Sen. Brown explains in the Washington Post, "'The Serious People — with a capital S and a capital P — all have really good pensions and good health care and good salaries... Raise the cap. There are ways we can bring a lot of money into Social Security. Some Democrats are a bit cowed by the Serious People.'"

At the same time, new research finds that Social Security is failing minorities. Stuerele, Carasso and Cohen concluded in 2004 that "less educated, lower-income, and non-white groups benefit little or not at all from redistribution in the old age and survivors insurance (OASI) part of Social Security." This can be partially explained by the fact that poor people and minorities often lack health insurance and suffer bouts of unemployment that decrease their benefits.

While a complete overhaul of the system, like the one proposed by the New America Foundation/Demos study, would be ideal, minor reforms are more likely to be political successful. One possible reform would be to raise the cap on the Social Security tax, currently set at $250,000. This would require wealthy individuals to pay more into the system. The system could also develop a more progressive benefit scheme, increasing benefits for those with low lifetime earnings who are unlikely to have a private pension.

The conventional wisdom in D.C. is that Social Security is a threat to the deficit and needs to be cut back. But, as J.K. Galbraith wrote, "The conventional view serves to protect us from the painful job of thinking." Today, the conventional wisdom is that Social Security needs cutting. In fact, it needs expanding, and thanks to Sens. Brown, Harkin, and Sanders it may well happen.